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A Second Chance for Downtown

AMANDA MAY | Aug 01, 2002

WITHIN DAYS OF THE DEVASTATING Sept. 11 terrorist attacks, urban planners, architects and real estate experts began speculating on how New York would rebuild the damaged area. Now, as the anniversary of the attacks approaches, ideas are still being bounced around, but with much more controversy, bickering and political bargaining. One point that virtually no one disputes: New York has a unique opportunity to use the rebuilding effort to spark the revival of an aging Downtown that was in decline before the city cleared the 16-acre site to create the twin towers 40 years ago.

This time, city officials, urban planners and real estate developers hope to get it right — to do what the World Trade Center failed to: bring development back from Midtown and other parts of the city. Panned by architecture critics, the WTC for much of its life was not an economic success. Since the twin towers were built, the disadvantages of Downtown (including an aging inventory of buildings) have only grown, as companies seek open floors, advanced wiring and more amenities.

Now, if public and private forces can come together to create a vibrant, mixed-use neighborhood, the downtown economy will be revived and more development will follow. Eventually, Lower Manhattan may even command the same rents as other city neighborhoods. “We need to get this right,” maintains Thomas Wright, executive vice president of the Regional Plan Association (RPA). “And that will take an exhaustive design process.”

Getting it right may also have ramifications that go beyond the future of New York. “The big picture for the entire country to watch is this whole process — from the terrorist act to rebuilding — which is not just a New York City problem, but rather a national and international problem,” according to John Powers, vice chairman of New York-based Insignia/ESG.

Indeed, what happens in New York may speak volumes about urban development for decades to come. “It is a revival of the country's third-largest central business district and should be a catalyst to produce better quality for both the entire neighborhood and other American cities,” says Eugene Kohn, senior partner with Kohn, Pederson & Fox, a New York-based architectural and planning firm.

The redevelopment, according to Kohn, should be a proud landmark architecturally and a fitting tribute to the tragedy. And, if the project succeeds in sparking the renaissance of downtown as a vibrant, 24/7 community, “New York can say to the rest of the nation and the world that we believe in our cities and what they stand for.”

A Public Squabble

But what are the chances of accomplishing that lofty goal? The debate that has been simmering among real estate developers, community activists, public entities and the victims' families has broken into a public squabble. Competing visions, agendas and economic realities all have to be accommodated in a design that balances commercial and retail space with a memorial and parks.

Maureen McAvey, senior resident fellow at the Washington, D.C.-based Urban Land Institute (ULI), says the goals that have been set to revitalize the area — to improve transportation and pedestrian walkways, to build both a memorial and public green space, and to consider a mix of uses — are the right ones. “This is a call to greatness, but there is no magical formula or prescription,” she says.

The harsh reaction by New Yorkers — including Mayor Michael Bloomberg — to the six concepts unveiled in late July indicates just how far from greatness the current planning is and how polarized the debate is becoming. All six proposals conformed to the specs of the leaseholder, Silverstein Properties, and the owner of the land, the Port Authority of New York and New Jersey: to replace the entire 13 million sq. ft. of office and retail space that were lost. New Yorkers turned out in droves for a special town meeting where all six designs were panned as too massive, too banal, too commercial.

The New York Times, in an editorial entitled “The Downtown We Don't Want,” blasted the concepts as “leaden” and “dreary” and said New Yorkers would not stand for a development with the same amount of commercial space as the old WTC. “Despite all the talk about a downtown that would be alive 24 hours a day with cultural institutions, entertainment and residential developments, these features, which make an urban area live and breathe, are missing. Instead there is office space, far more of it than the city is likely to need in the foreseeable future, and enough large-scale construction to keep the entire neighborhood in chaos for decades,” The Times wrote.

A Look at the Proposals

The “land use schemes” — they are not actual designs — were unveiled by the Lower Manhattan Development Corp. (LMDC), a subsidiary of the Empire State Development Corp. created by New York Gov. George Pataki and then-Mayor Rudolph Giuliani to work with the Port Authority to oversee long-term planning for the area south of Houston Street. The six proposals were drawn up by the architectural and urban planning company Beyer Blinder Belle, the firm that restored Grand Central Terminal.

The LMDC intended to select one concept by the end of the year, from which an actual design would take shape. That schedule is now likely to slip as complaints about the proposals increase. The concepts were based on the LMDC's blueprint that emphasized building a memorial well-integrated into its surroundings yet also creating “a symbol known around the world.” The guidelines also called for restoring at least part of the street grid and improved transportation. The resulting schemes suggest how the land will be divided between a memorial, office space and retail, while stopping short of creating actual designs, which will come later in the process.

The plans all incorporate the word “memorial” into the title. Four call for leaving the two, one-acre areas where the twin towers stood, often called the “footprints,” undeveloped. They all carve out room for 11 million sq. ft. of commercial office space, 600,000 sq. ft. of hotel space and another 600,000 sq. ft. for retail.

The different plans all incorporate a proposed transportation hub and call for the rebuilding of St. Nicholas Greek Orthodox Church, which was destroyed in the attacks. Lastly, all the plans suggest that there should be residential space built off-site.

The plans differ mainly on the treatment of West Street. Some call for a deck over the street. Another option is to submerge the street. The plans vary from four, five or six towers, ranging from 32 to 85 stories. Other considerations include how many streets should be reconnected to the Lower Manhattan grid and how much space should be dedicated to a memorial; the smallest would be four acres and the largest would be 10.

According to the LMDC, the Memorial Garden plan most closely mirrors what Larry Silverstein advocates for the site. The 71-year-old developer built 7 World Trade Center in 1987 and, more importantly, took a 99-year lease on the twin towers from the Port Authority in July 2001. The plan features a four-acre memorial bordered by extended Greenwich and West streets, as well as five office towers and 6.8 acres of public space.

Another major property owner in the area is Brookfield Properties, which has four buildings that encircle the WTC site. Brookfield Chairman John Zuccotti says he would like to see a Rockefeller Center-type development of 65- and 70-story buildings mixed with shorter structures, shopping arcades and pedestrian areas. “It will be visitor-friendly, yet respectful and sensitive to victims' families and friends,” he says.

At the unveiling of the concepts, the LMDC emphasized its obligations to the Port Authority, Silverstein and Los Angeles-based Westfield America Trust, the leaseholder of the retail portion of the site. “We looked carefully to see if it is possible to preserve those rights and have the beautiful center we want it to be,” said LMDC chairman John Whitehead. “So far, we think it is possible, and these plans reflect those restrictions.” Beyond that, neither officials at the LMDC nor the Port Authority will comment on whether they have a design preference.

Within a week, however, the pressure to rethink those assumptions began to build. Many critics questioned whether Downtown needs 11 million sq. ft of office, 600,000 sq. ft. of retail and another 600,000 sq. ft of hotel space. Wright of the Regional Plan Association says he is disappointed by what he perceives to be a lack of vision. “We were expecting that the six schemes would provide a universe of options, ranging from A to Z, on what is feasible on that site and surrounding area,” says Wright. “But it is more like from A to B.”

Infrastructure Overhaul

Even as the debate rages on — and pushes back the date of any construction — real estate executives and planners agree on some broad principles that, they maintain, will spark Downtown redevelopment. The most universally acknowledged need is to build the transportation links to create a 24/7 environment. “We obviously need a massive infrastructure below ground first before any development above ground begins,” notes Daniel Doctoroff, deputy mayor of economic development. The disaster knocked out three subway stations and the PATH (Port Authority Trans-Hudson) line that brings commuters to and from New Jersey.

Now, the city has a chance to plan a true Downtown transportation hub, similar to the Midtown hubs of Penn Station and Grand Central. “If Downtown is to succeed commercially, CEOs and decision makers must make sure that their employees have access to transportation,” explains Bruce Mosler, president of U.S. operations for Cushman & Wakefield. “And the restoration of existing lines is only a piece of it.”

Insurance and federal assistance money will pay for most of the repairs, but many argue that the city should seize this opportunity not only to rebuild what was damaged but also make it significantly better.

Lower Manhattan was never an easy commute for people from Westchester and Long Island, and its east-west connections were paltry. In the post-World War II era, new developments sprung up in Midtown while Lower Manhattan became increasingly empty, mainly because Midtown was easier for employees to reach from the growing suburbs.

Now, with billions of dollars in aid, plans to build a major transit hub for the PATH, Metro-North — which serves Westchester and Connecticut — and the Long Island Railroad are on the table. “We're talking about a terminal like Grand Central Station, one central station, which will be accessed by underground passageways and tunnels,” says Charles Gargano, chairman of the Empire State Development Corp., who estimates the cost of such a project in the range of $2 billion to $3 billion. “From there, commuters can go to whatever system — the 1/9 line, the N/R [subway], or the PATH without having to come up to the surface and walk through the streets.”

Construction on a new temporary PATH station is under way, it will be completed in December 2003. There has been talk of connecting the 1/9 line with the new Staten Island terminal as well. According to the LMDC, there have been numerous proposals over the years to eliminate West Street as a pedestrian obstacle while keeping it as a traffic artery. The LMDC, along with the Port Authority and Economic Development Corp., is considering either the submersion of West Street below ground — which Gargano says would likely run from the Battery tunnel exit to Chambers Street — or building a pedestrian deck above it.

Street Level

The LMDC argues that West Street could be transformed into a grand promenade, facilitating access to the ferry service behind the World Financial Center and to the 550-acre waterfront park that is currently under construction along the Hudson River. This would alleviate the traffic congestion Downtown by diverting non-local traffic, which is especially important because the LMDC estimates that the WTC memorial will attract several million visitors a year.

Wright of the Regional Plan Association is skeptical that the city can accomplish such lofty goals with the money earmarked for transportation infrastructure. “What we really need is $7.5 or $8 billion,” he argues. “There are all these good ideas, and we're going to have to make some hard decisions about [which projects] the money is going to go to.”

Converting West Street into a promenade is also a costly project. Lou Tomson, president and executive director of the LMDC, estimates the cost of submerging West Street anywhere between “several hundred million and $2 billion,” adding that the source of funding is not yet decided.

There is mounting concern that President George W. Bush is hesitating about providing New York with the entire $20 billion originally promised the city because of a growing federal budget deficit. Factor in New York's fiscal problems and such plans seem unlikely unless a private developer steps in, or if money from the Federal Emergency Management Agency (FEMA) can be diverted to new projects.

Still, Gargano is optimistic, saying it is important to think big: “If you don't have goals, these projects will never be thought of or built.”

A Sacred Site

The horrific terrorist attack that claimed the lives of 2,823 people ensures that the former WTC site will be no ordinary redevelopment. Whatever shape the new design takes, it will certainly include a substantial memorial honoring the people who perished on Sept. 11 and the six people who were killed in the 1993 bombing, whose memorial was destroyed.

Originally, some victims' families clamored for all 16 acres to be made into a memorial, but that is regarded as highly unlikely. But just how many acres will be set aside, and which ones, remain hotly contested, with all sides weighing in. Since the memorial must be planned before the rest of the site can be mapped out, all further development is in limbo until an agreement can be reached.

Although the victims' families have no legal claim to the site, they do have the power of public sympathy and support, and many don't want the footprints of the destroyed buildings to be developed. Whitehead points out that taller buildings would be necessary to sustain the 11 million sq. ft. of office space if the footprints remain undeveloped, whereas building on the footprints allows more flexibility to create smaller buildings.

In a speech to the U.S. Chamber of Commerce in mid-June, Bloomberg suggested that a smaller memorial would still honor the memory of those who died without being a constant reminder to Battery Park residents.

Between a Rock and a Hard Place

At this point, it's difficult to see how the competing demands on the site can be reconciled. With a 99-year lease on the property that requires him to pay $120 million a year to the Port Authority, Silverstein is in a tight spot. He has repeatedly vowed to rebuild the entire 11 million sq. ft. of office space at the site with smaller buildings ranging from 55 to 65 stories tall. His plans also call for a memorial, retail and some cultural facilities, such as a museum or performance space.

Westfield America, which held the lease on the highly lucrative mall under the towers, also is determined to replace every square foot it lost (see “Shopping for a Mall Solution,” Page 28). Silverstein has commissioned his own architect, David Childs of Skidmore, Owings & Merrill, to design a plan for the site, and already has begun construction on a replacement of 7 World Trade Center, which collapsed in the wake of the attacks.

Would the Port Authority renegotiate the lease to permit a smaller commercial development? The agency is not talking, but it badly needs the rent revenue (which Silverstein's insurance is now paying) and, therefore, has a huge interest in seeing the lost space replaced. The most the Port Authority has said is that it will reconsider the issue. Whether Silverstein would accept transferred development rights or other compensation is unknown.

Meanwhile, Silverstein's ability to rebuild may hinge on the outcome of his legal dispute with his two dozen insurers. They are wrangling over whether the two hijacked planes that slammed into the towers minutes apart constituted one “occurrence” or two. He stands to receive between $3.55 billion and $6.5 billion, depending on whether a jury, which will hear the civil case in November, agrees with Silverstein that two planes mean two separate occurrences.

The court case is complicated by the fact that the property's insurance policy was not finalized on Sept. 11. Most experts say it will cost about $5 billion to rebuild the office and retail space.

Back to the Future

One great irony in the debate over the development of the WTC site and downtown redevelopment in general is how it harkens back to the decisions made 40 years ago. The original plans for the WTC project envisioned just the sort of mixed-use development that has succeeded in other U.S. downtowns and which planners are advocating now for the site. In 1962, the Port Authority published a brochure showing a 72-story World Trade Mart surrounded by two smaller structures that would have included a hotel, retail space, restaurants and other consumer services.

The WTC project was put in motion by Nelson Rockefeller, then governor of New York, and his brother David, then chairman of Chase Manhattan Bank. They saw the WTC as a way to stop businesses from fleeing the aging buildings in the lightless canyons of Lower Manhattan for the more easily accessible and modern Midtown market.

Somewhere along the way, the mixed-use design was lost. Architects and urban planners scorned the twin towers that rose instead as unimaginative, despite the significant innovations that went into building them. In addition to their intimidating size, the towers were placed on a sterile plaza that cut off the street grid and isolated the buildings. Shopping was entirely contained within the underground mall at the twin towers. The windswept plaza between the towers was often difficult to cross and there was virtually no usable public space; life was entirely contained within the towers, which resembled a ghost town at night and on weekends.

“It was built as an icon, separated from Lower Manhattan as if it was its own city,” says McAvey of ULI. It was intentionally isolated. And it never worked as intended. Instead of luring multi-national corporations, the towers were occupied mainly by New York state offices and the Port Authority's headquarters upon their completion in 1973. The city then was entering the fiscal crisis that would result in the takeover by the Municipal Assistance Corp., a public finance corporation, in 1975.

It proved to be bad timing. Corporations fled the city, and especially Lower Manhattan, where inadequate transportation along with insufficient housing and amenities continued to plague the area long after the towers were erected. It wasn't until the go-go days of the 1990s that the towers finally attracted financial firms.

The twin towers also didn't spur much complementary development in the area. When the city's economy rebounded from the 1970s crisis and building resumed, very little occurred Downtown. In fact, of the nearly 110 million sq. ft. of office space built downtown between 1900 and 2002, 40 million sq. ft. was constructed before 1930. According to Bethesda, Md.-based CoStar Group, the overall office stock Downtown averages 78 years of age, versus 71 years for Manhattan.

As of Sept. 1, the average Downtown office vacancy rate was 6%, lower than Midtown's 7% for the first time in five years, reports Insignia/ESG. Since Sept. 11, Downtown's availability rate has jumped to 14.1%, and the rental gap has widened with Midtown fetching almost $60 per sq. ft. as opposed to only $38.25 per sq. ft. in Lower Manhattan.

So, 40 years later, urban planners and real estate developers are talking about modernizing Lower Manhattan and creating a 24/7 live-work environment that will attract both businesses and residents to the area. But how and when remain to be seen. “The essential thing right now is to decide the location and the size of the memorial and to repair and improve the infrastructure,” says Gargano of the Empire State Development Corp. “We can't talk about the number of buildings and the square footage until there is a stronger market, because you can't just throw up buildings and have them sit there empty.”

Cushman & Wakefield's Mosler agrees that the debating has to end and the planning has to begin. “If decisions are made this year, the earliest we would see product finished is 2008, and leased in 2010,” he explains, adding that construction should be phased so that all of the product does not come on line at the same time. “By then, we will need the space.”

If all the different entities — including the public organizations and private companies, the community groups and victims' families — can iron out their differences, then the Downtown revival envisioned in the middle of the last century may occur in this one. “This could set New York apart by developing a project that meets 21st century requirements,” says McAvey of ULI. “But it's a tall order.”

Amanda May is a New York-based writer. Associate Editor Jessica Miller and New York freelancer Martin Elder contributed to this report.

1921: The Port Authority of New York and New Jersey is established to consolidate the ports of New York harbor.

1947: New York Governor Thomas E. Dewey (below) first proposes the construction of a world trade center in Lower Manhattan to revitalize the port system as well as Lower Manhattan's Washington Market district.

1940s-1950s: Radio Row thrives as a retail district for television, radio and audio equipment consumers.

Late 1950s: The Downtown-Lower Manhattan Association, founded by David Rockefeller, works with the Port Authority to plan a world trade center-based revitalization scheme.

1961: The state of New York approves plans to condemn Radio Row through eminent domain and construct the World Trade Center in its place.

1966: Construction begins on the Twin Towers, designed by architect Minoru Yamasaki.

1968: The Battery Park City Authority is established to develop a mixed-use neighborhood adjacent to the site of the World Trade Center.

1971: Standing 110 stories, Tower One is completed.

1973: Tower Two is completed; the World Trade Center's Twin Towers comprise approximately 10 million sq. ft.

1973: The retail concourse beneath the World Trade Center opens, and is originally tenanted with service and convenience stores.

1975: Tower Two's observation deck begins welcoming visitors.

1976: The Windows on the World restaurant opens atop Tower One.

1981: Construction begins on the World Financial Center, an office complex in neighboring Battery Park City. Designed by Cesar Pelli, the buildings are intended to frame the Twin Towers.

July 15, 2002: The Port Authority of New York and New Jersey unveils six master plans for redeveloping the World Trade Center site. The schemes are immediately criticized by citizens and the media as unimaginative and too dominated by commercial space.

July 20, 2002: The Civic Alliance to Rebuild Downtown New York holds “Listening to the City” a 5,000-person public forum to discuss redeveloping Lower Manhattan and creating a memorial to Sept. 11.

September 2002: The Lower Manhattan Development Corp. and the Port Authority plan to narrow six master plans down to three.

Sept. 3, 2002: A trial begins to determine whether insurers will compensate Larry Silverstein for one or two terrorist attacks on the World Trade Center.

Sept. 11, 2002: The World Financial Center's Winter Garden, a glass-enclosed public atrium that was partially destroyed by the terrorist attacks, will reopen.

Dec. 1, 2002: The Lower Manhattan Development Corp. and the Port Authority will choose a final master plan to redevelop the World Trade Center site and Lower Manhattan.

BY THE NUMBERS: Downtown vs. Midtown

At $39.49 per sq. ft., office space in Midtown Manhattan cost approximately 20% more per sq. ft. than Downtown Manhattan's $31.61 per sq. ft. in second-quarter 2002. It is interesting to note that the Downtown vacancy rate increased after Sept. 11 despite the loss of approximately 13 million sq. ft., according to CoStar Group. Researchers say that the convergence of several factors, including the ripple effect of the dot-com bust and the psychological impact of the terrorist attacks on tenants, are the primary reasons for the increased vacancy.

The Lure of Reduced Rent

Ambitious redevelopment projects may be a decade away. Today, tenants are heading downtown for the savings.

The redeveloped World Trade Center site may be the best bet for sparking a downtown renaissance. But that won't happen for years, perhaps a decade. In the near term, however, there's another potential catalyst: really cheap rent.

For a lot of businesses, news of a federal rent subsidy and other inducements is enough. “[Tenants] are willing to put up with the lack of transportation and 24/7 environment in exchange for what amounts to very compelling economics,” says Doug Winschall, senior vice president for the eastern region of Trizec Properties, a New York-based REIT that owns One New York Plaza and 110 Williams Street.

According to Insignia/ESG, the average asking rent Downtown was $38.25 per sq. ft., compared with $59.14 per sq. ft. in Midtown during the first quarter of 2002. Factor in incentives in the form of rent subsidies of $4 to $12 per sq. ft., and the advantage is clear: it's nearly $30 per sq. ft. cheaper to locate Downtown.

“That's basically half-price,” says Ric Clark, president and CEO of New York-based REIT Brookfield Properties Corp., which owns four buildings valued at $3 billion that circle the World Trade Center site. Clark adds that it is “the biggest gap in rental rates between Midtown and Downtown that I've ever seen.”

There are also business assistance programs, grants to attract small businesses and funds for job creation and retention. So far, a total of $686 million has been made available, and grants totaling $291.6 million have been awarded, according to a report published by the New York City Independent Budget Office (IBO).

The bulk of the aid has gone to the almost 12,000 small businesses located south of 14th Street, which received a total of $224.8 million through mid-June. But the largest single Job Creation and Retention grant — offered to companies with more than 200 employees to entice them to stay Downtown — went to American Express, which received $25 million, despite the fact that it had already pledged to remain in Lower Manhattan.

According to Insignia/ESG, small and mid-size leases continue to account for the bulk of activity Downtown, such as 53,000 sq. ft. that was renewed by CAP Gemini Ernst & Young at 55 Broad St.

Bruce Surry, an executive managing director at Insignia/ESG, predicts that larger tenants will start taking space in the next few months. “We're going to see several significant lease transactions take place, ranging from 300,000 sq. ft. to 700,000 sq. ft,” he says. “We'll see leases from large law firms, financial services firms and insurance companies.” — Amanda May